Fund Construction Projects with Hard Money Loans

Using construction hard money loans is a bit of a secret in the world of finance. Many business owners never consider hard money lenders when looking for funding. If they can not get approved for a standard construction loan, they often give up. However, hard money loans should be a consideration for those that need funding for construction.

What Are Hard Money Loans?

A hard money loan is funded by a private investor that seeks a larger return on their investment. These private investors work under their own terms and on their own schedule. Therefore, no two hard money lenders will be alike. However, they work with a variety of investors and situations to loan money. They are often willing to work with those who have no credit or bad credit and work with those that could not get approved by a regular lender. The lenders often have a different application procedures, different interest rates and different terms when compared to a traditional business construction loan.

Application Process

In order to apply for a hard money loan, the first hurdle you will have to clear is locating a hard money lender. Most hard money lenders are not licensed to do business in all states. Therefore, you will have to locate a hard money lender in your local market to work with. If you are not approved at a traditional lender, they may be able to refer you to a hard money lender that works in your area. Once you find one, they will have an application that they want you to fill out. It is usually not as lengthy as a traditional loan application. The approval process is also quite a bit faster than working with a standard lender. They make all of the decisions personally about whether or not to lend. Therefore, they can often get you approved and get you the money you need within a few days.

Terms

The terms of a hard money loan are often different from what you would get from a standard lender as well. These loans are often short-term in nature. For example, you may be given three years for the loan. During the loan, you only make interest payments on the balance of the loan every month. Then at the end of the loan, you have to make one large balloon payment to return the money that was borrowed. This means that you may need to refinance the loan at some point before the balloon payment to make it work. However, this can give you a lot of flexibility during the construction phase to only make interest payments.

Caution

While working with a hard money lender can be beneficial, you will also need to exercise caution when working with them. The interest rates that come with these loans are significantly higher than the rates you will find from a traditional lender. Therefore, this is often a last resort for many borrowers. Try to get a regular loan first and if that does not work, using a hard money loan would be better than not getting access to the funds that you need.